Investors sue Henderson over John Laing purchase

LPs invested in Henderson’s second infrastructure fund have sued the fund manager over the vehicle’s performance, alleging ‘breach of mandate and misrepresentation’. Henderson says the claimants are ‘sophisticated investors’ and is ‘confident’ it has no legal liability.

After more than a year of ‘toing and froing’, limited partners (LPs) in the Henderson PFI Secondary Fund II have sued fund manager Henderson over the 10-year vehicle’s poor performance.

In a statement, Henderson said that “a majority of investors in Fund II” are claiming “alleged breach of mandate and misrepresentation”. The disgruntled LPs are said to comprise some 30 pensions, including schemes from big UK brands like Tesco and the BBC. 

At the heart of the dispute is the way in which Henderson used the circa £574 million (€675 million; $899 million) it raised for Fund II. LPs are claiming Henderson promised to invest their money in low-risk, steady-income projects that form part of the UK’s Private Finance Initiative (PFI), the country’s standard procurement process for public-private partnerships (PPPs).

Henderson thought the best way to do that was to buy UK developer John Laing, which owns an extensive portfolio of PFI projects, in late 2006, using all of the capital raised. But the deal backfired after the financial crisis burst, exposing Henderson to John Laing’s widening pension deficit and low forecasts for PFI projects in 2009 and 2010.

This caused a sharp drop in Fund II’s value, which hit rock bottom in September 2009, when it lost more than 60 percent of its value and was worth just £225 million. Even now, the fund is still worth about 30 percent less than when it closed.

“We are confident we have no legal liability to investors in this fund. We will vigorously defend these proceedings,” Henderson said in a statement, adding: “All the claimants are sophisticated investors.” A Henderson spokesman declined to add to the statement, but sources familiar with the proceedings highlighted that part of the fund manager’s defence will hinge on the three-month period it took to acquire John Laing.

Those three months saw a heated bidding war with Allianz Capital Partners – then headed by Thomas Putter, this month’s keynote interviewee – that ultimately saw Henderson win with a reported final bid of around £1 billion. Henderson will claim that its “sophisticated investors” raised no objections to the acquisition during the bidding period.

Clifford Chance is representing the fund manager.